The 2019 Dr. Ivan Miestchovich Economic Outlook & Real Estate Forecast Seminar, presented by the University of New Orleans and Latter & Blum, was recently held. Following are some of the trends and outlooks for commercial and residential real estate in New Orleans.
Hotels and Short Term Rentals Trends and Outlooks
Mavis Early of the Greater New Orleans Hotel & Lodging Association and Jeff Anding of New Orleans and Company, who covered the Hospitality and Tourism industry, shared the following:
32 new hotel projects are expected to open in the next few years, including:
- Hard Rock Hotel – Corner of Rampart and Canal Streets
- Higgins Hotel – Will support The World War II Museum
- Four Seasons Hotel – Will include hotel and condominium units in the former World Trade Center
- Residence Inn by Marriott St. Charles – The first new high-rise hotel in this area in a decade
Hotel occupancy and rates are trending up significantly over time, and occupancy is higher than national trends, although demand is expected to flatten in coming years.
Few hotels in New Orleans have meeting space; hotel developers should consider including meeting space, which acts as a buffer against fluctuations in transient rentals.
Although the impact of short-term rentals feels significant (with a total of 8,319 STRs currently registered in New Orleans, consisting primarily of whole-home rentals and renting at a higher average daily rate than hotels), the share of accommodations satisfied by short-term rentals is still significantly lower than hotels (18% to 82% for leisure and 10% to 90% for business).
There has been significant development activity in the hotel space within the last two years including:
- Recently Opened Hotels: The Jung Hotel, The Eliza Jane, Cambria Hotel and B on Canal
- Conversions: SpringHill/TownePlace Suites (former UNO building on Canal), NOPSI (former headquarters of New Orleans Public Service Inc.), and Hotel Peter and Paul (former church and school, recently named one of the best new hotels in the world)
- Renovations: Hampton Inn Metairie, Le Pavillon (new restaurant), JW Marriott (efficiency and technology upgrades) and Windsor Court Hotel (updated rooms, rooftop bar and updated ballroom)
The New Orleans Metro Hospitality Forecast is positive on most accounts, with revenues projected to increase through 2021. (For additional information see the link below.)
Retail, Office and Industrial Real Estate Trends and Outlooks
Kristen Early of SRSA, Bruce Sossaman of Corporate Realty and Daniel Marse of NAI Latter & Blum discussed Commercial Real Estate, noting the following:
Retail – “What’s Dangerous is Not to Evolve” – Amazon CEO Jeff Bezos
- Retail square footage per person has decreased significantly over the last ten years, and 2018 set a record for retail store closures, with more store closures expected. However, dollar, convenience and drug stores are showing staying power.
- Ways to stay relevant include: (1) providing an excellent in-store experience, (2) implementing artificial intelligence inside stores, (3) catering to conscious consumers, (4) keeping up with quickly changing demands including the recent demand for convenience and services, and (5) implementing mixed use formats, e.g. residential, retail, medical and food within a single building or shopping center
- Innovators include Lakeside, Clearview Mall, Elmwood and developers along the Lafitte Greenway.
- Class A buildings are 87% occupied and expected to continue to decline; New Orleans needs to attract new tenants. The Metairie market has been flat or declining.
- Trends include: (1) demand for higher density with open office spaces moving from 3-5 people per 1000 sf toward 8-10 people per 1000 sf, (2) national and regional firms are reducing or eliminating their office space in smaller markets, (3) energy sector problems are reflected in the local occupancy decrease, (4) construction costs are high, which increases rent, possibly leading to more tenants building out their own spaces and staying for longer terms
- Bright spots: New Orleans has very low rent rates compared to other markets, tenants want the flexibility provided by short-term leases and may pay more for that, and recently popular coworking spaces may provide a major tenant or joint venture opportunities for building owners.
- The small industrial market is essentially flat with a trend toward mixing multiple industrial uses.
- Shipping container volume has increased over time at the Port of New Orleans, and petrochemical industry activity has been increasing, creating more jobs paying higher wages. Waterfront industrial and petrochemical components are expected to grow more than distribution components.
Residential Real Estate Trends and Outlooks
Lacey Conway of Latter & Blum, Larry Schedler, and Terri North of Providence Community Housing reviewed the Residential Real Estate Market, which has shown consistent positive growth that is expected to continue.
- Market drivers include low interest rates, low inventory and increasing prices in addition to increasing flood insurance rates, decreasing affordability and an increasing demand for labor as New Orleans tries to diversify its industries.
- More homes were sold in 2018 than 2017, and agents believe we are in a transition period between a market peak and a correction.
- A continuing healthy market is expected with low inventory, steady demand and increasing prices.
- The multifamily market remains favorable for developers due to limited land and high insurance costs creating a barrier to entry and preventing supply from exceeding demand.
- The East Bank of Jefferson Parish remains dominate in the multifamily realm, but St. Tammany is the future for this space due to higher incomes and more land to develop.
- Affordable housing (defined as an individual or family paying 30% or less of their income for housing expenses) is decreasing statewide and significantly more so within New Orleans.
- Reasons for the lack of affordable housing: Incomes have not kept up with cost of living, partially due to increasing costs of insurance and taxes, and luxury developments and short-term rentals are considered more profitable than long-term affordable housing.
- Proposed solutions include (1) preserving the existing housing stock, (2) developing new affordable housing on scattered vacant lots throughout the city, (3) implementing policies which incentivize development of mixed income properties, such as providing density bonuses, and (4) promoting home ownership through soft second mortgage programs.